Don't fold now, Mr. Schneiderman

Published 12:01 am, Wednesday, August 24, 2011

They are fair questions, made all the more so by the ongoing revelations about the near collapse of the American economy three years ago. What's wrong with aggressively investigating the practices of the major banks? What's wrong with holding them accountable for their contributions to that crisis?

Nothing we can think of, certainly.

Yet here's New York Attorney General Eric Schneiderman, a Democrat, under fire from the unlikely quarters of a Democratic White House, for his continued opposition to a deal that would let banks off easy for their questionable practices. Mr. Schneiderman resists the terms of a proposed settlement, especially those that would make it harder to prosecute such discredited dealings as bundling loans in mortgage securities. On Tuesday, Bloomberg News reported that he was removed from the executive committee of state attorneys general working on the settlement.

Bundling mortgages, let's not forget, was a big reason why the banks themselves had to be bailed out in 2008. Banks were allowed to sell accumulations of mortgages to Fannie Mae, where they were repackaged and sold again to individual investors. Suddenly it didn't matter so much to banks if they were making loans to utterly unqualified borrowers. There were no consequences to speak of for the banks when those borrowers defaulted.

More Information

THE ISSUE:

New York's attorney general takes a hard line with banks in the mortgage scandal.

THE STAKES:

Why should a deal mean no more litigation?

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Now such banks as Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are understandably eager to strike a deal with state prosecutors across the country that would preclude further litigation. For a relatively small cash settlement -- the Justice Department and other state attorneys general have proposed $20 billion, which would mostly go toward paying for loan modifications -- these banks would be able to wipe their slates clean.

Nice work, isn't it, especially after Bank of America and Citigroup received $669 billion in loans from the Federal Reserve, far more than the public had any reason to suspect.

All told, banks and other financial institutions received about $1.2 trillion in loans from the Fed. That's as much as homeowners across the country owe on 6.5 million delinquent and foreclosed mortgages. The banks were made whole, but not the homeowners.

To think that after all that, the Obama administration is leaning on Mr. Schneiderman and a few other holdouts to go along with a settlement that amounts to immunity from further accountability.

It's disingenuous, meanwhile, for the Justice Department to be arguing that its motivation to settle with the Wall Street banks is all about helping the homeowners who took out those bad loans. A deal that would prevent further legal action against the banks is a disservice to all the homeowners who could be the victims of the next mortgage debacle.

There's this possible motivation for the Obama administration, too: Wall Street banks wield great political influence, and are generous contributors to political campaigns. Perhaps the White House wants to win them over, or at least neutralize them in a presidential race that's already underway.

That's not Mr. Schneiderman's problem, however. He should continue to stand up to Wall Street. Immunity from litigation should be out of the question until we know what exactly it is we're forgiving.